Operating Budget, Comprehensive AnalysisPonderosa, Inc., produces wiring harness assemblies used in the production of semi-trailer trucks. The wiring harness assemblies are sold to various truck manufacturers around the world. Projected sales in units for the coming five months are given below.January10,000February10,600March13,300April16,000May18,500The following data pertain to production policies and manufacturing specifications followed by Ponderosa:Finished goods inventory on January 1 is 900 units. The desired ending inventory for each month is 20 percent of the next month’s sales.The data on materials used are as follows:Direct MaterialPer-Unit UsageUnit CostPart #K2982 $4 Part #C303 7 Inventory policy dictates that sufficient materials be on hand at the beginning of the month to satisfy 30 percent of the next month’s production needs. This is exactly the amount of material on hand on January 1.The direct labor used per unit of output is one and one-half hours. The average direct labor cost per hour is $20.Overhead each month is estimated using a flexible budget formula. (Activity is measured in direct labor hours.) Fixed CostComponentVariable CostComponentSupplies$ — $1.00 Power— 0.20 Maintenance12,500 1.10 Supervision14,000 — Depreciation45,000 — Taxes4,300 — Other86,000 1.60 Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Activity is measured in units sold.) Fixed CostsVariable CostsSalaries$ 88,600 — Commissions— $1.40 Depreciation25,000 — Shipping— 3.60 Other137,000 1.60 The unit selling price of the wiring harness assembly is $110.In February, the company plans to purchase land for future expansion. The land costs $68,000.All sales and purchases are for cash. The cash balance on January 1 equals $62,900. The firm wants to have an ending cash balance of at least $25,000. If a cash shortage develops, sufficient cash is borrowed to cover the shortage and provide the desired ending balance. Any cash borrowed must be borrowed in $1,000 increments and is repaid the following month, as is the interest due. The interest rate is 12 percent per annum. 3. Direct materials purchases budgetJanuaryFebruaryMarchTotalPart K298Part C30Part K298Part C30Part K298Part C30Part K298Part C30Units producedDir. mat. per unitProduction needsDesired EITotal neededLess: BIDir. mat. to purchaseCost per unitTotal purchase costFeedback4. Direct labor budget. Round your answers to two decimal places,required.JanuaryFebruaryMarchTotalUnits to be producedDirect labor time per unit (hrs.)Total hours neededWages per hourTotal direct labor cost Required:Prepare a monthly operating budget for the first quarter with the following schedules:1. Sales budgetJanuaryFebruaryMarchTotalUnits10,00010,60013,300Unit selling900 x-900-900priceSalesFeedback2. Production budgetJanuaryFebruaryMarchTotalUnit salesDesired ending inventoryTotal neededLess: Beginning inventoryUnits producedFeedback

Budget means the expected value of future. Budget is not affected by the actual value as it is…

Answered: 3. Direct materials purchases budget…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter9: Profit Planning And Flexible Budgets

Section: Chapter Questions

Problem 7MCQ: Before a direct materials purchases budget can be prepared, you should first a. prepare a sales...

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Operating Budget, Comprehensive Analysis

Ponderosa, Inc., produces wiring harness assemblies used in the production of semi-trailer trucks. The wiring harness assemblies are sold to various truck manufacturers around the world. Projected sales in units for the coming five months are given below.

January	10,000
February	10,600
March	13,300
April	16,000
May	18,500

The following data pertain to production policies and manufacturing specifications followed by Ponderosa:

Finished goods inventory on January 1 is 900 units. The desired ending inventory for each month is 20 percent of the next month’s sales.
The data on materials used are as follows:

Direct Material Per-Unit Usage Unit Cost

Part #K298 2 $4

Part #C30 3 7

Inventory policy dictates that sufficient materials be on hand at the beginning of the month to satisfy 30 percent of the next month’s production needs. This is exactly the amount of material on hand on January 1.
The direct labor used per unit of output is one and one-half hours. The average direct labor cost per hour is $20.

Overhead each month is estimated using a flexible budget formula. (Activity is measured in direct labor hours.)

	Fixed Cost Component	Variable Cost Component
Supplies	$ —	$1.00
Power	—	0.20
Maintenance	12,500	1.10
Supervision	14,000	—
Depreciation	45,000	—
Taxes	4,300	—
Other	86,000	1.60

Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. (Activity is measured in units sold.)

	Fixed Costs	Variable Costs
Salaries	$ 88,600	—
Commissions	—	$1.40
Depreciation	25,000	—
Shipping	—	3.60
Other	137,000	1.60

The unit selling price of the wiring harness assembly is $110.
In February, the company plans to purchase land for future expansion. The land costs $68,000.
All sales and purchases are for cash. The cash balance on January 1 equals $62,900. The firm wants to have an ending cash balance of at least $25,000. If a cash shortage develops, sufficient cash is borrowed to cover the shortage and provide the desired ending balance. Any cash borrowed must be borrowed in $1,000 increments and is repaid the following month, as is the interest due. The interest rate is 12 percent per annum.